Bernard Busuulwa
2 November 2008
Uganda's first Credit Reference Bureau is finally on the road to full operation after successfully installing software and kicking off data collection.
Compuscan CRB Ltd has installed Financial Card System facilities in 185 branches, out of over 200 eligible service locations across the country.
Production servers have also been installed to absorb incoming data while new credit applications are being designed to enable banks to collect relevant data about existing and potential borrowers.
Compuscan is already collecting data from financial institutions, a task it terms critical.
"One of the fundamental aspects of running a credit reference bureau is to ensure integrity of information. We spend a lot of time and energy in proving that the information given to us is credible in all respects," said Michael Malan, the firm's managing director.
However, a hitch arose in the form of incompatibility between some financial companies' software platforms and Compuscan's financial card system.
"All banks have to make changes to their systems to ensure that they are able to share the same information about a single customer," said Mr Malan.
Compuscan is currently engaged in test runs for the new CRB service and all participating institutions have already been directed to submit data on running loans dating back to November 2007 and thereafter every month.
These institutions -- all regulated by the Bank of Uganda -- will then be required to demand a credit inquiry and Compuscan identity card from borrowers with effect from February 1, 2009.
Participating institutions are supposed to pay a fixed charge for credit inquiries conducted by the bureau but it is subject to reduction after three years of operation in line with the price adjustment clause contained in Compuscan's contract.
Uganda's financial sector currently has about 500,000 borrowers. But industry executives remain pessimistic about the possibility of reducing interest rates upon implementation of the bureau's operations. Average lending rates in Uganda's commercial banks are 19 per cent to 22 per cent per year.
"The bureau's operations might not reduce interest rates because of the current global financial crisis. The rates are likely to remain stable or even increase," said Paul Musoke of Housing Finance Bank Ltd.
The high foreign and local benchmark rates for lending facilities and low savings also remain a barrier to reduced interest rates.
Uganda's first CRB is a product of the Financial Institutions Act of 2004 that mandated BOU to establish it in an effort to raise the quality of lending activities in the country's financial sector.
Major benefits of a CRB include lower costs of borrowing through elimination of high verification costs for borrowers, quicker loan processing times, and exclusion of serial defaulters from the credit market.
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